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Banks slow down lending spree

CHINA'S new yuan lending in July increased at its slowest pace nine months low as banks reduced lending amid rising concerns of asset bubbles, the central bank figures showed yesterday.

Banks in China issued 355.9 billion yuan (US$52 billion) worth of yuan-denominated loans in July, sharply down from the 1.53 trillion yuan in June, the People's Bank of China said yesterday.

Meanwhile the M2, the broadest measure of money supply, grew 28.42 percent in July. The growth was almost flat when compared with the June figure.

"Lending slowed in line with expectations," said Sherman Chan, a Moody's economist. "Lending is expected to lose a bit of steam because the momentum during the first half is simply unsustainable."

The view is mirrored by Morgan Stanley, which expects further normalization in monetary expansion to a more sustainable level.

The July lending was one-third of the monthly average of the new yuan loans in the first seven months of the year.

Banks issued 7.73 trillion yuan of yuan loans in the period, 173 percent more than a year ago. It has already surpassed the 5 trillion yuan target for 2009 set at the beginning of the year.

"One area that banks may pay more attention to is the risk of bad debt," Chan said.

The record-high credit data have ignited concerns that the flood of liquidity has fueled China's stock and real estate sectors.

The benchmark Shanghai Composite Index has surged 80 percent this year while other major stock markets in the world were struggling to pick up.

Property prices in China's major 70 cities were 1 percent higher in July than a year earlier. The growth was 0.8 percentage point higher than June.

Lu Zhengwei, an Industrial Bank senior economist, said banks may also feel the push to slow down credit growth because they may find it more difficult to have access to good, low risk projects in the second half.

The central government said it will maintain its moderately loose monetary policy this year to consolidate economic growth despite skyrocketing credit.

Su Ning, deputy governor of the central bank, said last week the central bank won't use quantitative control measures to cap credit.

Chan said for the second half of the year, credit growth is likely to remain strong, albeit not as robust as the first half.

Authorities have already taken other measures to mop up excess liquidity, including resuming initial public offerings after a 10-month hiatus and issuing treasury bills after a short suspension.

Meanwhile, yuan deposits rose 28.5 percent in July, inching down from a growth of 29 percent in June.

Total new yuan deposits added 399.3 billion yuan last month, mainly boosted by deposits originated from fiscal revenue.

Residents channeled capital out of bank accounts against the bullish stock and property markets as residential savings dropped 19.2 billion yuan in July.


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